Report: Consumer Spending Sputters in March

Americans increased their spending more slowly in March, suggesting some are worried that their paychecks aren’t growing fast enough.

The Commerce Department said today (April 30) that consumer spending increased just 0.3% last month after a 0.9% gain in February, The Associated Press reported. Income grew 0.4% following a 0.3% gain in February. But after-tax income when adjusted for inflation increased just 0.2% in March. The gain followed two months of declines.

Consumer spending, which accounts for 70% of economic growth, rose 2.9% in the January-March quarter — the fastest pace in more than a year. The increase was a bright spot in an otherwise weak first quarter for economic growth.

But Paul Dales, senior U.S. economist at Capital Economics, noted that stronger spending in January and February drove the quarterly increase. And consumers spent more while saving less, which suggests they cannot sustain their spending pace without better pay.

“Real incomes will need to grow at a faster rate to prevent consumption growth from slowing,” said Dales. He noted that Friday’s report on April hiring is a crucial sign of where the economy is headed.

The government reported Friday that the overall economy grew at an annual rate of 2.2% in the January-March quarter. That’s down from 3% annual growth in the October-December period. The weakness mainly reflected government budget-cutting and weaker business investment.

In March, consumers spent 0.9% more on non-durable goods, such as clothing. Spending on durable goods, such as cars and appliances, fell 0.3%. Spending on services such as utilities and rent was mostly flat.

An inflation gauge tied to consumer spending rose a modest 0.2% in March. Over the past 12 months, the index is up 2.1%, just above the Federal Reserve’s 2% inflation target

Some economists worry consumers can’t keep spending as freely as they did in the first three months of this year without bigger pay raises. After-tax income rose just 0.6% in the first three months compared with a year earlier. That was the smallest pay increase in two years.